How to invest in property on a low income

Blackmore Homes has some quick and simple tips for those looking to get on the property market on a shoe-string budget

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07:00, 11 APR 2019

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Despite a recent Halifax study showing that first-time buyers currently account for over half of the UK property market, taking your first steps on the property ladder is never an easy task. New buyers are having to come up with record deposits of £33,000, with house prices soaring by moe than 20 per cent in the past 10 years.

For many hoping to get involved in the world of property investment , houses are proving to be entirely out of their budget, with prospective homeowners simply unable to come up with the cash required for the initial deposit. Although government schemes such as ‘Help to Buy’ are undoubtedly helping buyers take those first steps on the ladder, some of us are simply unable to keep up with rising house prices.

Fortunately, it’s actually possible to invest in property with very little money at all, and we’ve got some simple tips for buyers searching on a shoe-string budget.

Help to Buy Equity Loan Scheme

As we’ve already mentioned, the Help to Buy scheme is undoubtedly helping first-time buyers get themselves on the property ladder. Mortgage deposits are typically worked out at 10 per cent or 20 per cent of the property’s value. Through the Help to Buy scheme, however, buyers only need to come up with a payment of five per cent.

An ideal solution for those struggling to get a deposit together, this is a loan equity scheme where the government lends new buyers 20 per cent of the property price. The buyer will then have to supply a five per cent deposit, leaving them with a mortgage of just 75 per cent. However, this low-interest loan is only applicable if you’re buying a new-build, and is limited to properties costing under £600,000.

Help to Buy ISA

Alternatively, you might want to consider a Help to Buy ISA, which is another government scheme designed to help buyers save for their deposits. Whenever you make a contribution to your ISA, the government will add a further 25 per cent as a tax-free boost. Although you can only save up to £200 a month, your first contribution can be as much as £1000, meaning you can start your account with £1200 in it straight away.

The government will only apply the bonus once you’ve reached savings of £1600, but you’ll receive an additional £400 once you’ve reached this minimum amount. However, it’s worth noting that these government bonuses are capped at £3,000, so you’ll stop receiving an extra 25 per cent once you’ve saved more than £12,000. Of course, by that point, you’ll have more than enough money to put down a deposit on an average house.

Borrow Money from a Relative

When you’re looking to buy a home, the last thing you should do is max out your credit cards or take out a loan you’ll never be able to pay back. Since mortgage providers will obviously carry out extensive credit checks and evaluate your financial credibility, this means it’s incredibly unlikely you’ll be given a mortgage if you’ve taken out a loan to pay for it.

Instead (though this obviously isn’t a viable option for everyone), many new buyers will borrow money from a relative in order to pay the initial deposit, with others asking for early inheritance to help make the payments. Since nobody enjoys having to ask for money, this is always going to be a fairly awkward conversation, and you might be more comfortable in asking a family member to consider investing in the property with you instead. Additionally, buyers with particularly low incomes may need to add a family member to their mortgage as a guarantor, meaning they’ll be financially liable if you’re unable to make your mortgage payments on time.

Get a Joint Mortgage

Taking out a mortgage by yourself can seem like an impossible task at times. Taking out a joint mortgage with a partner, however, is a much more achievable goal. Since you’ll be able to combine your incomes, you can obviously split the cost of the deposit and mortgage repayments; ultimately making you a much more attractive proposition to lenders.

In addition, you can also double the potential benefits of a Help to Buy ISA, since government bonuses are capped at £3000 per person, not £3000 per individual property. Of course, this means you and your partner can save up a combined £24,000, then receive a further £6,000 in tax-free bonuses.

In fact, some lenders will allow up to four named owners on a mortgage, allowing you to truly maximise these money-saving benefits. However, no matter who you’re sharing a mortgage with, it’s always important to come to a legal agreement regarding what happens to the property if something goes wrong, and you also need to consider the fact you’ll be financially linked with everyone on the mortgage. After all, money can cause all kinds of problems.

By becoming stricter on your expenses, building your savings and negotiating the price of the property, you could become a homeowner in no time at all. By following the simple tips above, it could happen even faster.